With Larry Summers out, what’s next?

Larry Summers, who longed to be chairman of the Federal Reserve, ultimately concluded that an ugly fight over his nomination would be bad for the central bank and possibly even worse for the fragile U.S. economy. He told President Barack Obama as much in a phone call and letter on Sunday.

Obama did not disagree. Nor, at least at first, did financial markets.

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The Dow Jones Industrial Average was up more than 150 points in Monday-morning trading as investors digested the news and judged that the likelihood of a brutal confirmation battle — and a possibly failed nomination — had receded considerably.

Market players also said Sunday that other leading candidates to succeed Ben Bernanke as chairman of the Fed, including current Vice Chairwoman Janet Yellen and former Vice Chairman Donald Kohn, might be at least slightly more inclined than Summers to keep juicing the economy by printing new money for a longer period of time. That tends to jack up stock prices and keep interest rates lower on everything from home loans to credit cards.

“To the extent this puts Yellen back in the lead, I think most will slow down forecasting” that the Fed will soon begin scaling back its economic stimulus efforts, said James Paulsen of Wells Capital Management. “Overall, at the margin this probably tilts the Fed toward a bit more dovish feel than what most felt yesterday.”

The biggest question now is whether Obama acquiesces to Summers’s opponents and nominates Yellen or feels he has to pick someone else to look like he was not pushed into a corner.

The White House did not initially warm to Yellen’s candidacy, but a person close to process said that she is now the most likely pick. The announcement may come soon but likely not this week, according to the source.

One other candidate also never seems to recede from public chatter: former Treasury Secretary Timothy Geithner. Obama likes and trusts Geithner and has sounded him out about the Fed job. But Geithner, who has a book coming out next year and is doing lucrative private speaking and other work, has steadfastly said he is not interested in the job at this point.

A person close to Geithner said on Sunday night that the former Treasury secretary still believes serving as Fed chairman “will be someone else’s privilege.” Geithner, who is close to Summers, has been deeply involved in the selection process for the next Fed chairman.

Among the other contenders, Kohn is seen as less of a strong leader on monetary policy and more of a safe consensus choice. Roger Ferguson, a former Fed vice chairman and current president and CEO of teachers’ retirement firm TIAA-CREF, is also often mentioned as a possible replacement for Bernanke, whose term ends Jan. 31.

The biggest market and economic impact of Summers’s withdrawal may be in the reduced odds of a confirmation fight coming just as Republicans and Democrats do battle over how to fund the government and raise the nation’s borrowing limit. Both must be done over the next month and a half.

Indeed, people close to Summers say one main reason the former Treasury secretary decided to withdraw his name is that he did not feel he could ask the president to expend limited political capital on him at a time when Obama has been asking liberal Democrats to support his push to use force in Syria and may need to ask them to support a budget deal they won’t especially like with Republicans.

“If they put the nomination up sooner they could have gotten it done,” said a person close to both Summers and the White House. “They let it hang out there too long.”

Partly this was due to other issues, including the domestic surveillance scandals and the push to use force in Syria, intervening and pushing back the timetable for a Fed nominee.

While markets initially cheered Summers’s withdrawal, on actual matters of monetary policy, he was not likely to be different from Yellen or any other candidate Obama is likely to put up. Yellen is very closely aligned with Bernanke, who has made clear he hopes to wrap up stimulus by sometime next year.

“There may be some thought in markets that this may delay quantitative easing tapering, given that Yellen is now the front-runner and she is more dovish,” said Mark Zandi of Moody’s Analytics. “But that will quickly fade. Yellen is cut from the same cloth as Chairman Bernanke and choosing her would signal continuity in monetary policy.”